HomeMy Public PortalAbout2016-12-12 Insurance - Elected Officials-OPEB Recommend. Watertown Town Council
Administration Building
149 Main Street
Watertown, MA 02472
Phone. 617-972-6470
ELECTED
OFFICIALS:
Committee of the Budget and Fiscal Oversight
Mark S.Sideris, Meeting: December 12, 2016
Council President Report: January 10, 2017
Vincent J.Piccirilli,Jr., The Committee convened at 7:00 pm on Monday December 12, 2016 in the 3rd Floor Louis
Vice President Andrews Conference Room. Present were Vincent Piccirilli, Chair;Angeline Kounelis,Vice
Michael F.Dattoli, Chair; and Kenneth Woodland, Secretary. Staff present were Michael Driscoll,Town
Councilor At Large Manager; and Thomas Tracy,Town Auditor/Assistant Town Manager for Finance. Also
present were Daniel Sherman from Sherman Actuarial Services, LLC; State Representative
Councilor At Large Aaron Dus Jonathan Hecht; and Michael Shepard, a member of the School Master Plan Steering
ar
Committee.
Susan G.Falkoff,
Councilor At Large The agenda:
Anthony Palornba, 1. DLS Financial Management Review Action Item 16, Reconsider Providing Insurance
Councilor At Large Benefits to Elected Officials.
2. Other Post-Employment Benefits (OPEB)recommendations.
Angeline B.Kounelis,
District A Councilor
1.Insurance Benefits for Elected Officials
Lisa J.Feltner,
District B Councilor At the November 15, 2016 meeting, the sense of the Committee was to continue the long-
Kenneth M.woodland, standing practice of offering health insurance to elected officials, and the Chair was tasked
District D Councilor with discussing options on how to proceed with the Town Attorney. Attorney Mark Reich
said a simple motion would be appropriate, and provided suggested language,which was
presented to the Committee.
4 Action Item: Councilor Woodland made a motion using this suggested language, seconded by Councilor
Kounelis,recommending the Town Council requests and encourages the Town Manager to continue the
long-standing policy of finding paid elected officials eligible for participation in Watertown's plan of
insurance in accordance with the applicable laws and regulations of the Commonwealth of
Massachusetts. The motion was affirmatively voted 3-0.
2. OPEB recommendations
Mr. Sherman,the actuary who prepares the Town's OPEB Actuarial Valuation Report(attachment A, as of
June 30, 2015), discussed current status and options moving forward. Key points included:
1. Watertown is currently"pay as you go"which requires us to use a 3.5% discount rate (i.e. the
current value of a future sum of money given a specified rate of return),whereas if we were fully
prefunding(i.e. had an OPEB Trust Fund and were putting sufficient funds into the Trust)we could
use a higher discount rate. Depending on the investment policy,the rate could be as high as 8%. As
a practical matter, this means the current$138M "Unfunded Actuarial Liability" (UAL)would be
only$73M if Watertown was fully prefunding (see page 2 of the report, row d).
Page 1 of 2
Committee of the Budget and Fiscal Oversight Report January 10, 2017
2. Under current accounting rules (GASB 43 &45)the"Net OPEB Obligation" (NOO) is reported in
the Annual Audit as a footnote. Page 5 column 7 of the report shows this as $41M for FY17. Mr.
Sherman said that beginning in FYI 7,the accounting rules will change (GASB 74 & 75) and this
number will have to be reported as a liability on the Annual Audit balance sheet,which will be
considered when rating agencies review our credit rating.
3. The Municipal Modernization Act, effective November 7, 2016, (Chapter 218 of the Acts of 2016)
allows a municipality to create an OPEB Trust Fund without having to obtain a Home Rule Petition.
Mr. Sherman said many cities and towns are now setting up OPEB trust funds.
4. Watertown plans to have its pension system fully funded in FY2019, and in the FY2017 budget,
there was a placeholder showing the FY2020 pension savings, about$15.6M, allocated to the OPEB
Trust Fund.
5. Mr. Sherman said the actual amount required for OPEB funding depends on a variety of factors,but
primarily the length of the funding schedule, and rating agencies would generally be satisfied with
10 to 15 years. A longer schedule could allow a portion of the anticipated pension savings to be used
for other budget purposes.
Moving forward, four steps were identified:
1. The current pension assumptions were based on the 1/l/2015 Actuarial Valuation. A new valuation
will be done effective 1/l/17, and will be completed in April or May. The Committee will
reexamine assumptions of the FY2020 pension savings when this new data is available.
2. Mr. Sherman identified some minor problems with Chapter 218 of the Acts of 2016, as described in
his email November 16, 2016 (attachment B). It was his recommendation to wait until these issues
are fixed before voting to establish an OPEB Trust Fund under this section of the law.
Representative Hecht stated that he would take the action to follow up on a legislative solution.
3. The composition of the Board of Trustees is something that needs further examination considering
the range of options available. The Committee will be looking at best practices in other
communities, and will study this further before making a recommendation.
4. Determining the length of the funding schedule is critical. The current OPEB assumptions were
based on the 6/30/2015 Actuarial Valuation. A new valuation will be done effective 6/30/2017, and
will be completed in August. The Committee requested that Mr. Sherman include a range of
potential funding schedules in the report,to allow discussion on options moving forward.
The Committee will reconvene on this topic when this new information is available.
The meeting adjourned at 8:15 pm.
Report prepared by Kenneth Woodland and Vincent Piccirilli
Page 2 of 2
Attachment A
WATERTOWN
POST RETIREMENT BENEFITS PLAN
Actuarial Valuation Report
June 30, 2015
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TABLE OF CONTENTS
Section Item Page
SECTION I OVERVIEW.............................................................................................I
SECTION II REQUIRED INFORMATION.................................................................2
SECTION III MEMBERSHIP DATA AND MEDICAL PREMIUMS.........................3
SECTION IV REQUIRED SUPPLEMENTARY INFORMATION..............................5
SECTION V SCHEDULE OF EMPLOYER CONTRIBUTIONS...............................6
SCHEDULE A ACTUARIAL ASSUMPTIONS AND METHODS................................9
SCHEDULE B CONSIDERATION OF HEALTH CARE REFORM...........................14
SCHEDULE C SUMMARY OF PROGRAM PROVISIONS........................................ 15
SCHEDULE D GLOSSARY OF TERMS.......................................................................16
Town of Watertomi -
OPEB Valuation Under GASB 43&45
June 30,2015 -
Page 1
SECTION I-OVERVIEW
The Town of Watertown has engaged Sherman Actuarial Services,LLC to prepare an actuarial
valuation of their post-retirement benefits program as of June 30, 2015. The Town provided
employee data and premium information.
The purposes of the valuation are to analyze the current funded position of the Town's post-
retirement benefits program,determine the level of contributions necessary to assure sound
funding and provide reporting and disclosure information for financial statements,governmental
agencies and other interested parties.This valuation report contains information required by the
Government Accounting Standards Board's Statements Nos.43 and 45,respectively entitled
"Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans"and
"Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than
Pensions."
According to GASB principles, if the benefits are not pre-funded,the rate earned by the General
Asset Account must be used.Liabilities have been determined on a pay-as-you-go basis using a
discount rate of 3.5%.To illustrate the impact of fully prefunding the obligation we used an
alternative discount rate of 8.0%. Section II provides a summary of the principal valuation
results. Section V provides a projection of ARC and Pay-as-you-go amount.
The unfunded actuarial liability decreased from$163,903,670 to$132,944,757 from 2013 to
2015,based on a 3.5%discount rate. The primary drivers for the decrease were fewer
participants in the plan,less than expected increases in premium costs and retirees electing less
expensive plan options.
The report was prepared under the supervision of Daniel Sherman, an Associate of the Society
of Actuaries and a Member of the American Academy of Actuaries, who takes responsibility for
the overall appropriateness of the analysis, assumptions and results. Daniel Sherman is deemed
to meet the General Qualification Standard and the basic education and experience requirement
in the pension area. Based on over twenty years of performing FAS 106 valuations of similar
complexity, Mr. Sherman is qualified by experience in retiree medical valuation. Daniel
Sherman has met the Qualification Standards of the American Academy of Actuaries to render
the actuarial opinion contained herein.
Respectfully Submitted,
SHERMAN^ADCTUARIIAALL SERVICES,LLC
February 23,2016
Daniel Sherman,ASA,MAAA,EA Date
CEO and Consulting Actuary
Town of Watertoam
OPEB Valuation Under GASB 43&45
June 30,2015
Page 2
SECTION II—REQUIRED INFORMATION
Fay-As-You-Go FullPrefunding
3.5% 8.0%
a) Actuarial valuation date June 30,2015 June 30,2015 Difference
b) Actuarial Value of Assets $ 0 $ 0 $ 0
c) Actuarial Accrued Liability
Active participants $ 68,796,871 $ 28,952,725 $ 39,844,146
Inactive participants 69,354,055 44,610,380 24,743,675
Total AAL $ 138,150,926 $ 73,563,105 $ 64,587,821
d) Unfunded Actuarial Liabtlily"UAL"[c-b] $ 138,150,926 $ 73,563,105 $ 64,587,821
e) Funded ratio[b/c] 0.0% 0.0% 0.0%
0 Annual covered payroll $ 46,781,741 $ 46,781,741
g) UAL as percentage of covered payroll 295.3% 157.2%
li) Nonnal Cost for fiscal year 2015 $ 3,975,501 $ 1,276,098 $ 2,699,403
i) Amortization of UAL for fiscal year 2015* 4,290,485 4,020,423 270,062
j) Annual Required Contribution"ARC" $ 8,265,986 $ 5,296,521 $ 2,969,465
for fiscal year Fiscal Year[b+i]
k) Fstirnated Town Contribution for FY2016 $ 4,342,324 $ 4,342,324
*30-year amortization,increasing 4%per year
Tozer of Watertaiva
OPEE Analysis Under GAS@ 43&45
June 30,2015
Page 3
SECTION III-MEMBERSHIP DATA AND MEDICAL PREMIUM
Monthly Group Insurance Commission (GIC)Full Cost Rates
Health benefits are available to retirees and beneficiaries through a number
of plans.The following are fully insured community rated plans with
monthly gross premiums which included associated administrative fee.
Non-Medicare Plans Type Individual Family
Fallon Direct Care HMO $493 $1,183
Fallon Select Care HMO 655 1,572
Harvard Pilgrim Independence PPO 749 1,829
Health New England HMO 494 1,225
Navigator by Tufts Health Plan PPO 659 1,610
NHP Care HMO 471 1,247
UniCare Basic with CIC INDM 975 2,282
UniCare Basic without CIC INDM 932 2,184
UniCare Choice PPO 472 1,136
UniCare Plus PPO 656 1,567
Medicare Plans:
Fallon Senior Plan HMO $ 312 N/A
Harvard Medicare Enhance INDM 392 N/A
Tufts Medicare Complement HMO 354 N/A
Tufts Medicare Preferred HMO 277 N/A
UniCare OME with CIC INDM 404 N/A
Life Insurance($5,000): $10.35 N/A
Tone of Watertom
OPEB Analysis Under GASB 43&45
June 30,2015
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Page 5
SECTION IV—REQUIRED SUPPLEMENTARY INFORMATION
SCHEDULE OF FUNDING PROGRESS-3.5%
(a) (b) (b)- (a) (a)/(b) [(b)-(a)l/(c)
Actuarial UAL as
Actuarial Actuarial Accrued Untanded Percentage
Valuation Value of Liability AAL Funded Covered of Covered
Date Assets (AAL) (UAL) Ratio Payroll Payroll
June30,2015 0 138,150,926 138,150,926 0.00% 46,781,741 295.3%
Jim 30,2013 0 163,903,670 163,903,670 0.00% 48,034,463 341.2%
June 30,2011 0 154,097,543 154,097,543 0.00% 51,273,922 300.5%
June 30,2010 0 123,051,734 123,051,734 0.00% 43,337,216 283.9%
June 30,2009 0 118,381,044 118,381,044 0.00% 42,074,967 281.4%
June 30,2008 0 98,360,512 98,360,512 0.00% 44,516,867 221.0%
DEVELOPMENT OF OPEB COST AND NET OPEB OBLIGATION(NOO) -3.5%
Year Annual Annual Change in
Ending Required Interest on Amortization OPEB Cost Estmiated NOO
June 30 Contribution NOO ofN00 (1)+(2)-(3) Contribution (4)-(5) NOO Balance
(1) (2) (3) (4) (5) (6) (7)
2013 26,666,708
2014 6,657,510 933,335 828,175 6,762,670 4,736,498 2,026,172 28,692,880
2015 8,265,986 1,004,251 891,101 8,379,136 4,342,324 4,036,812 32,729,692
2016 8,605,518 1,145,539 1,016,470 8,734,587 4,597,637 4,136,950 36,866,643
2017 8,958,237 1,290,332 1,144,949 9,103,621 4,831,139 4,272,482 41,139,124
To%m of Watertown
OPEB Valuation Under GASB 43&.45
June 30,2015
Page 6
SECTION V—SCHEDULE OF EMPLOYER CONTRIBUTIONS
The Government Accounting Standards Board's Statement No. 45 "Accounting and Financial
Reporting by Employers for Postemployment Benefits Other Than Pensions" outlines various
requirements of a funding schedule that will amortize the unfunded actuarial liability and cover
normal costs. Amortization of the unfunded actuarial liability is to be based on a schedule that
extends no longer than 30 years. The contribution towards the amortization of the unfunded
actuarial liability may be made in level payments or in payments increasing at the same rate as
salary increases.
In the amortization schedule shown on the following pages, the amortization of the unfunded
accrued liability is assumed to increase annually by 4%. The normal cost is expected to
increase at the same rate as the assumed health care trend rate. The contributions were
computed assuming that the contribution is paid on June 30,at the beginning of the fiscal year.
Projected benefit payments/employer contributions reflect only the benefit for those
individuals now employed or retired,not any future entrants.
Paragraph 12 of GASB 45 stipulates that valuations must be performed at least biennially. The
following projections are intended only to illustrate long-term implications of Prefunding
versus Pay-as-You-Go.
Toiim of Watertown
OPEB Analysis Under GASB 43&45
June 30,2015
Page 7
SECTION V—SCHEDULE OF EMPLOYER CONTRIBUTIONS
Fay-As-You-Go 3.5%
Fiscal Year Amortization
Ending n Normal Cost ofUAL ARC Pay-as-You-Go
2015 3,975,501 4,290,485 8,265,986 4,342,324
2016 4,174,276 4,431,242 8,605,518 4,597,637
2017 4,382,990 4,575,247 8,958,237 4,831,139
2018 4,602,140 4,723,624 9,325,764 5,044,608
2019 4,832,247 4,877,494 9,709,741 5,227,393
2020 5,073,859 5,038,370 10,112,229 5,421,625
2021 5,327,552 5,206,507 10,534,059 5,554,974
2022 5,593,930 5,384,469 10,978,399 5,679,442
2023 5,873,627 5,573,290 11,446,917 5,806,697
2024 6,167,308 5,773,690 11,940,998 5,936,805
2025 6,475,673 5,986,432 12,462,105 6,069,827
2026 6,799,457 6,212,330 13,011,787 6,205,831
2027 7,139,430 6,452,245 13,591,675 6,344,881
2028 7,496,402 6,707,091 14,203,493 6,487,047
2029 7,871,222 6,977,839 14,849,061 6,632,399
2030 8,264,783 7,265,519 15,530,302 6,781,007
2031 8,678,022 7,571,223 16,249,245 6,932,945
2032 9,111,923 7,896,109 17,008,032 7,088,288
2033 9,567,519 8,241,405 17,808,924 7,247,111
2034 10,045,895 8,608,413 18,654,308 7,409,493
2035 10,548,190 8,998,512 19,546,702 7,575,513
2036 11,075,600 9,413,165 20,488,765 7,745,253
2037 11,629,380 9,853,920 21,483,300 7,918,797
2038 12,210,849 10,322,420 22,533,269 8,096,229
2039 12,821,391 10,820,401 23,641,792 8,277,636
2040 13,462,461 11,349,704 24,812,165 8,463,109
2041 14,135,584 11,912,280 26,047,864 8,652,737
2042 14,842,363 12,510,190 27,352,553 8,846,613
2043 15,584,481 13,145,621 28,730,102 9,044,834
2044 16,363,705 13,820,882 30,184,587 9,247,497
2045 17,181,890 14,538,422 31,720,312 9,454,700
2046 18,040,985 15,300,829 33,341,814 9,666,546
Torn of Watertomi
QPEB Analysis Under GASB 43&45
lime 30,2015
Page 8
SECTION V—SCHEDULE OF EMPLOYER CONTRIBUTIONS
Full Prefunding 8.0%
Fiscal Year Amortization
Endingln NolmalCost of UAL ARC Pay-as-You-Go
2015 1,276,098 4,020,423 5,296,521 4,342,324
2016 1,339,903 4,181,240 5,521,143 4,597,637
2017 1,406,898 4,348,490 5,755,388 4,831,139
2018 1,477,243 4,522,430 5,999,673 5,044,608
2019 1,551,105 4,703,327 6,254,432 5,227,393
2020 1,628,660 4,891,460 6,520,120 5,421,625
2021 1,710,093 5,087,118 6,797,211 5,554,974
2022 1,795,598 5,290,603 7,086,201 5,679,442
2023 1,885,378 5,502,227 7,387,605 5,806,697
2024 1,979,647 5,722,316 7,701,963 5,936,805
2025 2,078,629 5,951,209 8,029,838 6,069,827
2026 2,182,560 6,189,257 8,371,817 6,205,831
2027 2,291,688 6,436,827 8,728,515 6,344,881
2028 2,406,272 6,694,300 9,100,572 6,487,047
2029 2,526,586 6,962,072 9,488,658 6,632,399
2030 2,652,915 7,240,555 9,893,470 6,781,007
2031 2,785,561 7,530,177 10,315,738 6,932,945
2032 2,924,839 7,831,384 10,756,223 7,088,288
2033 3,071,081 8,144,639 11,215,720 7,247,111
2034 3,224,635 8,470,425 11,695,060 7,409,493
2035 3,385,867 8,809,242 12,195,109 7,575,513
2036 3,555,160 9,161,612 12,716,772 7,745,253
2037 3,732,919 9,528,076 13,260,994 7,918,797
2038 3,919,564 9,909,199 13,828,763 8,096,229
2039 4,115,542 10,305,567 14,421,109 8,277,636
2040 4,321,319 10,717,790 15,039,109 8,463,109
2041 4,537,385 11,146,502 15,683,887 8,652,737
2042 4,764,254 11,592,362 16,356,616 8,846,613
2043 5,002,467 12,056,056 17,058,523 9,044,834
2044 5,252,590 12,538,298 17,790,888 9,247,497
2045 5,515,220 - 5,515,220 9,454,700
2046 5,790,981 5,790,981 9,666,546
Town of Watertoen
OPEB A1mlysis Under GASB 43&45
Jone 30,2015
Page 9
SCHEDULE A-ACTUARIAL ASSUMPTIONS AND METHODS
TOWN OF WATERTOWN,ALL GROUPS
Interest Pay-As-You-Go: 3.5%per year,net of investment expenses
Full Prefunding: 8.0%per year,net of investment expenses
Actuarial Cost Method: Projected Unit Credit
Mortality:—Healthy: The RP-2000 Combined Healthy Table - Projected to 2021 using
Scale AA.
—Disabled: The RP-2000 Combined Healthy Table set forward 2 years -
Projected to 2021 using Scale AA.
Medical Care Inflation:
Current Prior
Year Inflation Rate Inflation Rate
2015 6.0% 7.0%
2016 5.5% 6.5%
2017 5.0% 6.0%
2018 4.5% 5.5%
2019&after 4.5% 5.0%
Age-Based Morbidity: None for Group Insurance Commission(GIC)plans.
Participation: 85% of fixture retirees are assumed to participate in the retiree
medical plan. 75% of future retirees are expected to elect life
insurance.
Marital status: 80% of male employees and 60% of female employees are
assumed to have a covered spouse at retirement. Wives are
assumed to be three years younger than their husbands.
Amortization period: 30-year level percent of pay assuming 4% increasing; closed
basis for prefunding, open basis for pay-as—you-go. The
amortization period is a specific number of years that is
counted fi•om one date, declining to zero With the passage of
time.
Toan of Watertomi
OPEB Analysis Under GASB 43&45
June 30,2015
Page 10
SCHEDULE A-ACTUARIAL ASSUMPTIONS AND METHODS
TOWN OF WATERTOWN,ALL GROUPS
Current Actives: Current active employees who are assumed to retire prior to
age 65 are valued with a weighted-average premium. This
weighted-average premium is based on the medical plan
coverage of current retirees under age 65.
It is assumed that future retirees are Medicare eligible.
At age 65, all participants are assumed to participate in post
65 plans in the same proportions as current retirees over age
65.
Pre-Age 65 Retirees: Current retirees who are under age 65 are assumed to remain
in their current medical plan until age 65.
At age 65, all participants are assumed to participate in post 65
plans in the same proportions as current retirees over age 65.
Post-Age 65 Retirees: Current retirees over age 65 remain in their current medical
plan until death.
Termination Benefit: 60% of current actives over age 50 with at least 10 years of
service are expected to elect medical coverage starting at age
65.
Medical Cost: It is assumed that future retirees participate in the same
manner as current retirees. Per capita costs were developed
from the monthly costs. Future cost sharing is based on the
weighted average of the current cost sharing of retirees and
beneficiaries.
Toem of Watertown
OPEB Analysis Under GASB 43&45
June 30,2015
Page 1 I
SCHEDULE A-ACTUARIAL ASSUMPTIONS AND METHODS
GROUPS 1 AND 2 (NON-TEACHERS)
SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates
of withdrawal and vesting,disability,and service retirement are as follows:
Service Retirement Years of Rates of
Age Disability Male Female Service Withdrawal
25 .02% 0 15.0%
30 .03 1 12.0
35 .06 2 10.0
40 .10 3 9.0
45 .15 4 8.0
50 .19 1.0% 1.5% 5 7.6
55 .24 2.0 5.5 10 5.4
60 .28 12.0 5.0 15 3.3
62 .30 30.0 15.0 20 2.0
65 .30 40.0 15.0 25 1.0
69 30.0 20.0 30+ 0.0
70 100.0 100.0
Tomi of wztertoml
OPEB Analysis Under GASn 43&45
June 30,2015
Page 12
SCHEDULE A-ACTUARIAL ASSUMPTIONS AND METHODS
GROUPS 1 AND 2 (TEACHERS)
SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates
of withdrawal and vesting,disability,and service retirement are as follows:
Age Disability (Years of Rates of
Service Withdrawal
25 .02% 0 15.0%
30 .03 1 12.0
35 .06 2 10.0
40 .10 3 9.0
45 .15 4 8.0
50 .19 5 7.6
55 .24 10 5.4
60 .28 15 3.3
62 .30 20 2.0
65 .30 25 1.0
69 30+ 0.0
Male Female
Service Retirement Service Retirement
Age <20 20+ <20 20+
50 0.00 0.01 0.00 0.01
55 0.02 0.03 0.02 0.04
60 0.12 0.20 0.12 0.16
61 0.15 0.30 0.15 0.20
62 0.18 0.35 0.18 0.25
63 0.15 0.35 0.15 0.25
64 0.25 0.30 0.25 0.30
65 0.40 0.50 0.40 0.40
66 0.40 0.30 0.40 0.30
67 0.40 0.30 0.40 0.25
68 0.40 0.30 0.40 0.35
69 0.40 0.40 0.40 0.35
70 1.00 1.00 1.00 1.00
Teachers electing the increased benefit under Chapter 114 of the Acts of 2000 were assumed to
have higher rates of retirement from ages 54 to 62 if their service was greater than 30 years.These
rates are the same for males and females. The rate at age 54 is 0.035. The rate increases to 0.06 at
age 55, 0.18 at age 56 and 0.30 at age 57. The rate for ages 58, 59, and 62 is 0.40. The rate for
ages 60 and 61 is 0.35.
Tomi of Waterton
OPEB Analysis Under GASB 43&45
Jung 30,2015
Page 13
SCHEDULE A-ACTUARIAL ASSUMPTIONS AND METHODS
GROUP4
SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates
of disability,service retirement,and withdrawal are as follows:
Service Years of Rates of
Age Disability Retirements Service Withdrawal
25 0.20% 0 15.0%
30 0.30 1 15.0
35 0.30 2 15.0
40 0.30 3 15.0
45 1,0o 1.0% 4 15.0
50 1.25 2.0 5 15.0
55 1.20 15.0 6 15.0
60 0.00 20.0 7 15.0
62 0.00 25.0 8 15.0
65 0.00 100.0 9 15.0
69 0.00 100.0 10 15.0
I t+ 0.0
ToNm of Watertown
OPEB Analysis Under GASB 43&45
June 30,2015
Page 14
SCHEDULE B—CONSIDERATION OF HEALTH CARE REFORM
Swmnm),of Effects ofSetected Provisions
Early Retiree Reinsurance Program—Effective 6/1/2010: Due to the short-term nature of
the payments expected to be received under this program,there is no impact on long-term
GASB 45 liabilities.
Removal of Lifetime Maximum The elimination of the lifetime maximums does not impact
on the retiree health plan obligations since the plans had no lifetime maximums.
Medicare Advantage Plans-Effective 1/1/2011: The law provides for reductions to the
amounts that would be provided to Medicare Advantage plans stalling in 2011. The Town
offers a fully insured Medicare Advantage plan. Any impact is reflected, as premiums would
reflect reduced payments,and so no further adjustments were necessary.
Expansion of Child Coverage to Age 26:The impact of more kids participating would be
implicitly reflected in the premium rates.Any impact is reflected, as premiums would reflect
the coverage, and so no further adjustments were necessary.
Medicare Part D Subsidy-Shrinking Medicare Prescription Drug "Donut Hole"-
Starting 1/1/2011—RDS payments are not reflected as on ongoing offsetting item in GASB 45
valuations, and so no impact is reflected.
Excise Tax on High-Cost Employer Health Plans(aka Cadillac Tax)-Effective 1/l/2018
There is considerable uncertainty about how the tax would be applied, and considerable
latitude in grouping of participants for tax purposes. Based on a projection of the calculation on
a blended pre-65/post-65 retiree coverage basis,the plan is not expected to be affected by the
Cadillac Tax.
Other: We have not identified any other specific provision of health care reform that would be
expected to have a significant impact on the measured obligation. As additional guidance on
the legislation is issued,we will continue to monitor any potential impacts.
Tomm of watenowm
OPEB Anatysis Under GASB 43&45
June 30,2015
Page 15
SCHEDULE C-SUMMARY OF PROGRAM PROVISIONS
Retirement Eligibility: Age 55 with 10 years of service, or 20 years of service.
Disability Eligibility: 10 years of service and under age 55.
Termination Eligibility: 10 years of service.
Retirement Medical Insurance: In general, the Town pays a variable portion of retiree post-
retirement medical costs: 80% for HMO and PPO plans, and
60%for indemnity plans.
For Teachers.retired before July 1, 2009, the Town pays 90%
of costs.
The Town's weighted-average current costs were determined
by the difference of the weighted-average gross premium,
and the contributions for current retirees and spouses, based
on the medical plan coverage.
Estimated net annual ner capita cost for 2015-2016
Teacher retired
before Julv 1.2009 All Other
Under Age 65 $676.21 $613.41
Post Age 65 $439.88 $282.82
Life Insurance: The Town contributes $ 5.17 per month per retiree receiving
$5,000 basic life insurance coverage.
Spousal Coverage: Current and future retirees may elect to include their spouses
as part of their post-retirement benefits,
Section 18 Coverage: The Town adopted Section 18 under Chapter 32B of the
General Laws of Massachusetts, which requires that an
employee must participate in the Medicare program as the
primary payer once one reaches age 65 and is Medicare
eligible,
Medicare Supplement: The Town reimburses 60% of the Medicare Pail B premium
to the eligible employees and spouses.
Toad of watertom
OPEB Analysis Under GASB 43&45
June 30,2015
Page 16
SCHEDULE D- GLOSSARY OF TERMS
Actuarial accrued liability
That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present
Value of OPEB benefits and expenses which is not provided for by future Normal Costs and
therefore is the value of benefits already earned.
Actuarial assumptions
Assumptions as to the occurrence of future events affecting OPEB costs, such as: mortality,
withdrawal, disablement and retirement; changes in compensation and Government provided
OPEB benefits; rates of investment earnings and asset appreciation or depreciation; procedures
used to determine the Actuarial Value of Assets; characteristics of future entrants for Open
Group Actuarial Cost Methods; and other relevant items.
Actuarial cost method
A procedure for determining the Actuarial Present Value of OPEB benefits and expenses and
for developing an actuarially equivalent allocation of such value to time periods, usually in the
form of a Normal Cost and an Actuarial Accrued Liability.
Actuarial experience gain or loss
A measure of the difference between actual experience and that expected based upon a set of
Actuarial Assumptions, during the period between two Actuarial Valuation dates, as
determined in accordance with a particular Actuarial Cost Method.
Amortization(of unfunded actuarial accrued liability)
That portion of the OPEB plan contribution which is designed to pay interest on and to
amortize the Unfunded Actuarial Accrued Liability or the Unfunded Frozen Actuarial Accrued
Liability.
Annual OPEB cost
An accrual-basis measure of the periodic cost of an employer's participation in a defined
benefit OPEB plan.
Annual required contributions of the employer(ARC)
The employer's periodic expense to a defined benefit OPEB plan, calculated in accordance
with the parameters. It is the value of the cash contributions for a funded plan and the value of
the expense entry in the profit and loss section of the financial statements.
Closed amortization period (closed basis)
A specific number of years that is counted from one date and, therefore, declines to zero with
the passage of time. For example, if the amortization period initially is thirty years on a closed
basis, twenty-nine years remain after the first year, twenty-eight years after the second year,
and so forth. In contrast, an open amortization period(open basis) is one that begins again of is
recalculated at each actuarial valuation date. Within a maximum number of years specified by
law or policy(for example, thirty years), the period may increase,decrease,or remain stable.
Tom of Watertown
OPEB Analysis Under GASB 43&45
June 30,2015
Page 17
SCHEDULE D- GLOSSARY OF TERMS
Covered payroll
Annual compensation paid to active employees covered by an OPEB plan. If employees also
are covered by a pension plan, the covered payroll should include all elements included in
compensation on which contributions to the pension plan are based. For example, if pension
contributions are calculated on base pay including overtime, covered payroll includes overtime
compensation.
Defined benefit OPEB plan
An OPEB plan having terms that specify the benefits to be provided at or after separation from
employment. The benefits may be specified in dollars (for example, a flat dollar payment or an
amount based on one or more factors such as age, years of service, and compensation), or as a
type or level of coverage (for example, prescription drugs or a percentage of healthcare
insurance premiums).
Funded ratio
The actuarial value of assets expressed as a percentage of the actuarial accrued liability.
Funding policy
The program for the amounts and timing of contributions to be made by plan members,
employer(s), and other contributing entities (for example, state government contributions to a
local government plan)to provide the benefits specified by an OPEB plan.
Healthcare cost trend rate
The rate of change in per capita health claims costs over time as a result of factors such as
medical inflation, utilization of healthcare services, plan design, and technological
developments.
Investment return assumption (discount rate)
The rate used to adjust a series of future payments to reflect the time value of money.
Level dollar amortization method
The amount to be amortized is divided into equal dollar amounts to be paid over a given
number of years; part of each payment is interest and part is principal (similar to a mortgage
payment on a building). Because payroll can be expected to increase as a result of inflation,
level dollar payments generally represent a decreasing percentage of payroll; in dollars
adjusted for inflation,the payments can be expected to decrease overtime.
Level percentage of projected payroll amortization method
Amortization payments are calculated so that they are a constant percentage of the projected
payroll of active plan members over a given number of years. The dollar amount of the
payments generally will increase over time as payroll increases due to inflation; in dollars
adjusted for inflation,the payments can be expected to remain level.
Town of Watertowi
OPEB Analysis Under GASH 43&45
June 30,2015
Page 18
SCHEDULE D- GLOSSARY OF TERMS
Net OPEB obligation
The cumulative difference since the effective date of this Statement between annual OPEB cost
and the employer's contributions to the plan, including the OPEB liability (asset) at transition,
if any, and excluding (a) short-term differences and (b) unpaid contributions that have been
converted to OPEB-related debt. It will be included as a balance sheet entry on the financial
statements.
Normal cost
That portion of the Actuarial Present Value of OPEB benefits and expenses which is allocated
to a valuation year by the Actuarial Cost Method. It is the value of benefits to be accrued in the
valuation year by active employees.
OPEB-related debt
All long-term liabilities of an employer to an OPEB plan,the payment of which is not included
in the annual required contributions of a sole or agent employer (ARC) or the actuarially
determined required contributions of a cost-sharing employer. Payments generally are made in
accordance with installment contracts that usually include interest. Examples include
contractually deferred contributions and amounts assessed to an employer upon joining a
multiple-employer plan.
Other postemployment benefits
Postemployment benefits other than pension benefits. Other postemployment benefits (OPEB)
include postemployment healthcare benefits, regardless of the type of plan that provides them,
and all postemployment benefits provided separately from a pension plan, excluding benefits
defined as termination offers and benefits.
Pay-as-you-go
A method of financing an OPEB plan under which the contributions to the plan are generally
made at about the same time and in about the same amount as benefit payments and expenses
becoming due.
Required supplementary information (RSI)
Schedules, statistical data, and other information that are an essential part of financial reporting
and should be presented with, but are not part of, the basic financial statements of a
governmental entity.
Tomi of Watertown
OPEB Analysis Under GASB 43&45
June30,2015
Attachment B
From: Daniel Sherman [mai Ito:Dan(&shermanactuarv.comj
Sent: Wednesday, November 16, 2016 10:41 AM
To: Daniel Sherman <Dan(cDshermanactuarv.com>
Subject: Chapter 218 of the 2016 Acts -OPEB modifications
Good Morning,
This is a note to my OPEB clients. Chapter 218 of the 2016 Acts made modifications to Chapter 20 of
the MGL Chapter 32B. Attached is a bullet point summary. I noticed two problems with the Act and
sent the note below to my Representatives and Senator, PERAC and our Town Administrator. If you
are funding your OPEB or are thinking about it,you may wish to contact your representatives about
getting this law corrected. Feel free to cut and paste my message, I am not going to be applying for a
copyright.
Take care and let me know if you have any questions,
Dan
Good Evening Representatives Wong and Brodeur, and Senator Lewis:
By way of background, I am an consulting actuary living and working in Wakefield. I have worked
with over 40 Massachusetts Retirement Systems during the past 29 years, and over 100
Massachusetts Municipalities and Authorities in valuing OPEB plans. The fine folks at PERAC know
me well. I am also a long time member of the Finance Committee of Wakefield (serving as both Chair
and Vice Chair)and longtime member of the Wakefield Retirement Board. I have 30 years of
experience consulting on and valuing OPEB plans.
Several of my OPEB clients are asking about the impact of Chapter 218 as it relates to their OPEB
plans. I have studied the law carefully and feel it is quite good. There are only two problems that I
wish to bring to your attention with the hope that Technical Corrections can be made to fix them.
The first is pretty straight forward. OPEB stands for Other Post Employment Benefits (other than
Pension for Massachusetts). All the plans I work with include BOTH Medical and Life Insurance
subsidies. Many include Dental. I am sure the intent was to include Life Insurance, Dental Insurance
and any other Post Employment benefit. However, the Act does not include them. In several spots it
says just Medical expenses. Granted, Medical is probably 90% -98%of the liability, but it is not
100%. 1 would ask that that oversight be corrected so municipalities may save for Life Insurance,
Dental Insurance and any other post-employment benefit as defined by the Governmental Accounting
Standards Board.
The second problem is in the method of paying benefits. As I read the Act, Section 15(h) requires a
2/3rds vote by the governing body to expend monies for benefits. These benefits are paid monthly. It
is totally impractical to assume Town Meeting will meet and vote monthly to pay the bills from the
GIC, BCBS, Tufts, Harvard Pilgrim, etc. It may be possible to have TM authorize for one year, but what
if they say`no'? Will the Town now be in default for not making medical premium payments and
retirees no longer have insurance? This language seems to infer that the OPEB trust is like a
Stabilization Fund. That is an incorrect use of the Trust. In addition, if the money is pulled at the
beginning of the fiscal year to cover the entire year, a significant amount of investment earnings will
be lost.
Best Practices says the OPEB trust should be run just like our Retirement Systems. Each month the
Retirement Board meets to discuss new participants, authorize retiree payments, decide on
investments, disabilities, etc. We do not have to go to Town Meeting to pay pension benefits from the
pension trust. I propose that the language be rewritten to mirror Chapter 32 of the MGL. Have the
OPEB Fund Board of Trustees authorize payment for these post-employment benefits as they become
due. For many years I have been advising my clients that they need to think of these Trusts like
pension plans. Municipalities make payments into the trust(some employees and retirees do as well)
and the Trust pays the carriers or the GIC. Today, very few trusts are paying benefits. But someday
that will change as municipalities adopt best practices for OPEB funds. Chapter 218 (actually, Section
20 of Chapter 3213) needs to be fixed to allow these changes to occur.
Wakefield will have almost$10 million in our OPEB Trust by the end of this year. If we become fully
funded in the next 20, it sure would be nice to use that money to pay benefits without having monthly
Town Meetings requiring 2/3rds votes in the affirmative.
Not correcting this will discourage municipalities from doing the right thing and putting money aside
for OPEB. I know that because I have been meeting with clients and they feel this needs to be fixed
before they are going to put substantial sums into his Trust. As a member of the Wakefield Finance
Committee I have a real problem saying that we should continue to fund OPEB with this Act's 2/3rds
requirement in place. One of the reasons we are now a AAA community is because of our OPEB
Trust. I do not want to go back to being AA.
Thank you for your time and consideration. I would be happy to discuss these issues at any time and
assist with the re-write. Please feel free to contact me at the number below or with an email.
Take care,
Dan
Dan Sherman
Sherman Actuarial Services, LLC
16 High Street
Wakefield, MA 01880